Director Penalty Notice

Approximately $20 billion of unpaid ATO debt remained outstanding in 2016. With a growing $53 billion debt book to account for, accountants have now correctly predicted that the ATO would turn to stronger enforcement once JobKeeper concluded – this includes use of the Director Penalty Notice. 

Businesses or individuals with temporary cash issues can easily fall behind on their ATO payments. Although these taxpayers would prefer to stay on top of their tax obligations, they face significant hurdles when the ATO acts to recover the tax debt.

It is always best to manage tax debts (or any other kind) with a proactive approach. Obtaining professional assistance early to engage the ATO in negotiations for payment arrangements is likely to reduce negative consequences in the long run. However, as an accountant or business advisor, it’s essential to know what action the ATO could take if there is no payment arrangement in place or no payment plan can be agreed.

Director Penalty Notice (DPN)

The ATO requires small or medium sized companies to:

• Lodge Business Activity Statements (BAS) quarterly or Instalment Activity Statements (IAS) monthly.
• The BAS will include GST and PAYG, the IAS will be for PAYG only.
• Pay the associated liabilities by the due dates.
• Make superannuation contributions on behalf of employees by the due dates.
• Lodge a Superannuation Guarantee Charge (SGC) statement if the company doesn’t pay contributions by the due date.

Where a company fails to pay PAYG, GST or superannuation the ATO can recover the amounts from directors by issuing a Director Penalty Notice (DPN). By issuing a DPN the ATO has enlivened their right to recover the outstanding amounts from the director personally. Put another way, the ATO can sue the director and expose personal assets to recover a company debt.

There are two kinds of Director Penalty Notices:

Non-Lockdown Director Penalty Notice

• • Directors can remit, that is to say ‘get out of’ their penalty through the following options:
    • Cause the company to pay the debt;
    • Appoint a Small Business Restructuring Practitioner within twenty-one (21) days of the DPN;
    • Appoint a Voluntary Administrator within twenty-one (21) days of the DPN;
    • Appoint a Liquidator within twenty-one (21) days of the DPN.
  • For a director penalty to be considered a Non-Lockdown DPN the company must have:
    • Lodged the BAS or IAS within three months of the due date;
    • Lodged the SGC statement by the due date.
  • If a director fails to act in any on any of the above options within the prescribed timeframe (21 days) they will have lost their ability to remit their personal liability.

Lockdown Director Penalty Notice 

• • Where a company fails to lodge their BAS or IAS within three (3) months of the due date or the SGC statement by the due date the director penalty is considered to be locked down;
  • This means the director cannot remit their liability through an external administration appointment;
  • If the company enters into formal insolvency arrangements such as Small Business Restructuring, Voluntary Administration or Liquidation, the ATO can still recover the funds from the director personally.

Example Director Penalty Notice (Non-lockdown DPN)

The key takeaway is that directors are personally liable for GST, PAYG and SGC at the end of the day in which the liability is incurred. Where a company is failing to pay the associated liabilities by the due dates then lodgement compliance is essential for the director to retain the ability to remit their liability. However, twenty-one days is not long to act if a Non-Lockdown DPN is issued to the director.

Regroup Solutions firmly believes that companies with accrued or accruing GST, PAYG and SGC liabilities need a turnaround plan. In the absence of a considered plan to deal with these liabilities directors are exposing themselves and their personal assets unnecessarily.

If you would like to discuss your business please contact one of our turnaround and restructuring specialists at ReGroup Solutions.